Income Tax Appellate Tribunal - Hyderabad
A.P. State Warehousing Corporation,, ... vs Assessee on 28 August, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
Sl.No. ITA No. AY Appellant Respondent
1 672/H/14 2008-09 AP State Dy. Commissioner
W arehousing of Income-tax,
Corporation Ltd., Circle - 1(1), Hyd.
Hyderabad
PAN -
AABCA7364F
2 673/H/14 2009-10 -do- -do-
3 452/H/14 2008-09 Dy. AP State
Commissioner of W arehousing
Income-tax, Corporation Ltd.,
Circle - 1(1), Hyderabad
Hyd PAN -
AABCA7364F
Assessee by Shri B. Satyanarayan Murthy
Revenue by Shri Solgy Jose T. Kottaram
Date of hearing 20-08-2014
Date of pronouncement 28-08-2014
O RDE R
PER SAKTIJIT DEY, J.M.:
These are three appeals two by the assessee and one by the department against two separate orders of CIT(A)-II, Hyderabad pertaining to AYs 2008-09 and 2009-10.
2. So far as assessment year 2009-10 is concerned, appeal is by the assessee only, whereas for AY 2008-09, there are cross appeals. Since facts are identical and issue in dispute is common, all these appeals were clubbed and heard together, and therefore, disposed off by this common order.
2ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
ITA No. 672/Hyd/14 for AY 2008-093. The assessee has raised altogether nine grounds, ground No. 1 being general in nature is not required to be adjudicated. Ground Nos. 2 to 8 relates to the issue of disallowance of claim of deduction u/s 80-IB(11A) of an amount of Rs. 4,04,20,767/-.
4. Briefly the facts relating to the aforesaid issue are, the assessee a state government undertaking is in the business of providing storage facilities for agricultural products. For this purpose, it takes on lease godowns from private parties and lets them to FCI for storage of agricultural products. For the AY under dispute, assessee filed its return of income on 30/09/2008 declaring total income of Rs. 15,39,11,020 after claiming deduction of an amount of Rs. 2,31,24,709 u/s 80IB of the Act. Initially the return was processed u/s 143(1) and a refund of Rs. 5,08,56,890 was issued to the assessee. Subsequently, on verification of record the AO noticed that due to some technical mistake while processing the return u/s 143(1) the income was adopted at Rs. 13,29,40,273/-, which resulted in underassessment/escapement of assessment of income to the extent of Rs. 2,09,69,750/-. Further, it was noticed by the AO that for the AY under consideration assessee had claimed deduction of Rs. 2,31,24,709 u/s 80IB of the Act. Whereas on verification of earlier records, it was noticed by the AO that assessee's claim of deduction u/s 80IB(11A) has been consistently rejected by the department by holding that assessee was in the business of providing storage facility only and not integrated business of handling, storage and transportation of food grains. On the basis of aforesaid reasons, the AO reopened the assessment by issuing a notice u/s 148 of the Act calling upon the assessee to file a return of income. In response to the said notice and subsequent notice issued u/s 142(1), the 3 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
assessee on 12/07/2011 submitted a revised return. In course of the assessment proceeding, the AO asked the assessee to show cause why deduction claimed u/s 80IB(11A) shall not be disallowed. Though, assessee objected to the proposed disallowance of deduction claimed u/s 80IB(11A), but, the AO rejecting the explanation of the assessee disallowed the deduction claimed u/s 80IB(11A) of the Act, for the following reasons:
4.1 AO was of the view that for availing deduction u/s 80IB(11A) the assessee must derive profit from the eligible business i.e. integrated business of handling, storage and transportation of food grains. The assessee has to begin such business from the initial year of claim of deduction. The unit in respect of which the deduction claimed should have started operations on or after 1 st April, 2001. Whereas, as noted by the AO the assessee corporation was incorporated 05/08/1950 and as per the functions listed in the Warehousing Corporations Act, 1962, the main business of the assessee is providing ware housing facilities for the storage of food grains and other agriculture related commodities, such as fertilizers and agricultural implements. According to the AO, on examination of the tender documents and contract agreements produced by the assessee in earlier assessment years, it was found that the assessee was not engaged in integrated activities of handling, storage and transportation of food grains as handling and transportation are not main functions of the assessee corporation. He further noted that the books of account also revealed that the assessee was not deriving any profit from handling and transportation. Therefore, he concluded that the assessee is not in the integrated business of handling, storage and transportation. Further, the AO noted that the other condition u/s 80IB(11A) that the eligible unit must start its functions on or after 01/04/2001 is also not available with the assessee as the information available on record shows that no new activity such as 4 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
handling and transportation were undertaken by the assessee on its own from 01/04/2001. The AO was of the view that the intention of legislature in introducing section 80IB(11A) is to encourage the persons to come forward for creating facilities for bringing the food grains from remote places without much loss of quantity of the commodities by adopting modern handling and storage. As the assessee was not engaged in integrated activity of storage, handling and transportation, the conditions of section 80IB(11A) are not satisfied. He further noted that the assessee has not maintained separate books of account so far as new undertaking is concerned and has computed the eligible deduction on estimate basis. He observed that the assessee has not filed valid form 10CCB also. Accordingly, the AO came to hold that the assessee being not eligible to claim deduction u/s 80IB(11A), the deduction claimed of Rs. 4,04,20,767 has to be disallowed and added to the returned income. Being aggrieved of such addition, the assessee preferred appeal before the CIT(A).
5. The CIT(A) also sustained the addition basically for the reason that the assessee has not started its operation on or after 01/04/2001. Further, the CIT(A) also took note of the fact that in the preceding AY i.e. AY 2007-08 her predecessor has dismissed assessee's appeal with regard to claim of deduction u/s 80IB(11A) of the Act.
6. We have heard the parties and perused the orders of the revenue authorities as well as other materials on record. At the very outset, the learned AR submitted before us that the issue in dispute is squarely covered by the order of the ITAT, Hyderabad Bench in assessee's own case for the preceding assessment years 2005-06, 2006-07 and 2007-08. On perusal of the order of the coordinate bench dated 24/01/2014 in ITA No. 834, 835 & 836/Hyd/2012, we find that identical issue came up for consideration before the Tribunal in 5 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
assessee's own case. The coordinate bench after considering the submissions of the parties and examining the relevant statutory provision held as under:
"11. We have considered the rival submissions and perused the material available on record. It is evident from the orders of the lower authorities that the claim of the assessee for relief under S.80IB(11A) has been disallowed mainly on the ground that the activities of the assessee do not constitute an 'integrated'. The next reason for which the claim was disallowed was also that, assessee corporation, having been incorporated in 1958, and in the absence of anything on record to substantiate that the assessee has taken up any new activity of handling and transportation of foodgrains subsequent to 2002, assessee is not entitled for relief under S.80IB(11A), since relief under that section is available only for five years from 'initial year', viz. either from 1958 or from the year in which such new activity was taken up by the assessee. We do not find merit in these reasons of the lower authorities for making the disallowance. We may now examine the correctness or otherwise of these reasons given by the lower authorities.
12. We find that the assessee-corporation owns premises accommodating godowns at different places all over the State. In each area it either constructs or offers an investor to construct new godowns, which the corporation takes on lease. It is the claim of the assessee before the CIT(A) that the plinth area of construction of the godowns varies from minimum area of 10,000 sft. up to a maximum area of 50,000 sft. and the scheme of construction of godowns started in the year 2002. Each unit is an undertaking because food-grains are stored and handled and transported thereto and therefrom. It may be noted at this juncture that there is no restriction in S.80-IB that an existing business unit cannot set up new undertakings to carry on the integrated business of handling, storage and transportation of food grains. The godowns where this business is to be carried on need not be owned by the assessee. When the assessee-corporation has set up these godowns in as many as in 73 towns and at different places in those towns, it is very much entitled for relief under S.80IB(11A) of the Act in respect of each such new undertaking set up by it. It appears from the impugned orders that the lower authorities have proceeded as if the assessee's claim for relief under S.80IB(11A) is in respect of existing godowns, and not merely in respect of the new ones started after 2001. It is so because the period of five years was sought to be counted from the year of incorporation of the assessee, viz. 1958; and also observing that no new activity was taken up after 2001. Since each new godown is an undertaking in itself, assessee is entitled for such relief under S.80IB(11A) for five years in 6 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
respect of each such undertaking from the 'initial year' in which it was set up.
13. As for the eligibility of the activity of the assessee to the relief under S.80IB(11A), it is worthwhile to refer to the intention of the Legislature in introducing sec 80IB(11A), which is reproduced hereunder :
"Under the existing provisions of Sec. 80-IB of the Income-tax Act, a deduction is allowed, in computing the taxable income, in respect of profits derived from a new industrial undertaking or a ship or the business of a hotel. To address the country's basic concerns relating to enhanced food security and agricultural development, upgradation and modernization of infrastructure for storage, handling and transportation of food grains is a central concern in which introduction of modern technology would bring greater efficiency in the grain management system and minimize post harvest food grain losses."
It is evident from the above, that the insertion of sub-section (11A) is intended to encourage building of storage capacities, by providing that any undertaking engaged in integrated bulk handling, storage and transportation would be allowed hundred per cent deduction for the first five years and thirty per cent deduction for the next five years. Thus, Sec 80IB(11A) is applicable to income derived from the integrated business of handling, storage and transportation of foodgrains. A perusal of the activities of the assessee in association with the Food Corporation of India, as demonstrated by the learned counsel for the assessee in the paper-book filed, clearly indicates it is engaged in the integrated business of handling, storage and transportation of food grains. There is no dispute the assessee's main business is to provide warehousing facility for foodgrains. The Assessee has been constituted under with these very objects in view. Merely because the Assessee has engaged outsiders for transportation or leased out some of the godowns for storage does not mean that the Assessee is not engaged in the integrated business of handling and storage of foodgrains. In the course of their integrated business, the assessee had collected rentals for storing foodgrains and had engaged outsiders to transport the food grains. Further, the fact that the assessee had been carrying on similar business would not disentitle the assessee from claiming relief u/s 80IB(11A), in respect of the new warehouses put to use after the introduction of sec 80IB(11A) i.e on or after 1.4.2001. The assessee has furnished in the paper-book list of new Godowns, which have been put to use by the assessee after 1.4.2001. It is well settled that deduction under Chap VIA, in respect of new undertakings set up by the assessee by way of expansion of the existing undertakings, as held by the Apex Court in the cases of Textile Machinery Corporation Ltd v CIT 107 ITR 195 SC and CIT v Indian Aluminium Company Ltd (108 ITR 367). The number of new godowns operated by the Assessee after 1.4.2001 clearly shows that there was substantial expansion of the assessee's business of 7 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
handling, storing and transportation of food grains, which obviously could have been done only be undertaking new warehousing facilities year after year even after 2001. In respect of these new warehouses, each of which constitutes an eligible undertaking, assessee is separately entitled for deduction under S.80IB(11A) of the Act. In our opinion therefore, the assessee is entitled to deduction u/s 80IB(11A), in respect of income derived from the new undertakings, warehouses, set up and operated from 1.4.2001 for storage, handling and transportation of food grains. We accordingly set aside the impugned orders of the CIT(A) on this issue for all the three years and set aside the matter to the file of the Assessing Officer, with a direction to verify the claim of the assessee for deduction under S.80IA(11A) of the Act in respect of new undertakings set up after 2001, and allow the same in accordance with law, and after giving due opportunity of hearing to the assessee."
7. The learned DR has neither controverted the fact that the issue is covered by the aforesaid decision of the coordinate bench nor could bring any contrary decision to our notice. Facts being identical and issue in dispute being the same, respectfully following the order of the ITAT in assessee's own case (supra), we set aside the impugned order of ld. CIT(A) and direct the AO to verify the claim of the assessee for deduction u/s 80IB(11A) in respect of new undertakings/warehouses setup after 01/04/2001 and allow deduction accordingly. The AO must afford a reasonable opportunity of being heard to the assessee before deciding the issue.
8. Ground No. 9 relates to disallowance of claim of deduction of deferred revenue expenditure of Rs. 35,33,240/-.
9. Briefly the facts are, during the proceeding before ld. CIT(A) assessee claimed that it is incurring expenditure towards purchase of LDP covers but in the accounts treating it as deferred revenue expenditure. During the previous ear the assessee had debited an amount of Rs. 9,63,302/- to the P&L A/c as deferred revenue but in the return of income assessee itself added it back to the income returned but actual expenditure incurred of Rs. 35,33,240 was claimed as deduction. Whereas the AO has allowed an amount of Rs. 9,63,302/- debited to the P&L Account as deferred revenue 8 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
expenditure completely ignoring the actual claim of the assessee. The CIT(A), however dismissed the ground raised by the assessee by observing as under:
"8. The eighth ground of appeal relates to the claim of deduction in respect of LDP covers treated as deferred revenue expenditure in the accounts. The appellant submitted in statement of facts that it had been treating the expenditure on LDP covers as deferred revenue expenditure in its accounts. It was further submitted in the statement of facts that in the returns filed, it had added back the amount debited to the profit & loss account of Rs. 9,63,302/- and claimed the actual expenditure incurred of Rs. 35,33,240/-. However, the AO has allowed only the amount of deferred revenue expenditure debited to the profit and loss account and not the actual expenditure. During the course of appellate proceedings the appellant has not made any written submissions on this issue. Hence, this ground of appeal is dismissed."
10. We have considered the submissions of the parties and perused the order of the CIT(A) on this issue. It is the contention of the ld. AR before us, assessee from the earlier assessment years has been following the same method of accounting in respect of expenditure incurred for LDP covers by claiming the actual expenditure incurred. The department also never disallowed such claim in preceding assessment years. The ld. AR submitted, CIT(A) was not correct in dismissing the ground without considering it on merit. As can be seen, the CIT(A) has dismissed the ground raised by the assessee merely because the assessee has not referred to it in the written submissions filed before her. However, fact remains the assessee did raise a specific ground on the issue of disallowance of deduction claimed towards purchase of LDP covers. Therefore, the CIT(A) should have done well to decide the issue on merit after considering the facts and materials on record. In any case of the matter, considering the fact that assessee's ground has not been decided on merit by the CIT(A) and also keeping in view submissions of ld. AR that similar expenditure claimed in earlier assessment years have been allowed on actual basis, we remit this issue back to the file of the AO to verify 9 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
assessee's claim of actual expenditure incurred and decide accordingly after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
11. In the result, assessee's appeal is allowed for statistical purposes.
ITA No. 452/Hyd/14 for AY 2008-09 - appeal by revenue12. The only issue in this appeal of the department is in respect of disallowance of claim of depreciation made by the AO on wooden crates but allowed by the CIT(A).
13. Briefly the facts are, during the assessment proceeding the AO noticed that assessee has claimed depreciation of Rs. 36,84,096 at the rate of 100% on wooden crates. The AO opined that wooden crates constitute plant and machinery, hence, entitled for depreciation @ 15% only. Further, he noticed that the assets were put to use for less than 180 days, as result of which the assessee would be entitled for 50% of the depreciation. Accordingly, the AO allowed depreciation at 7.5% and disallowed an amount of Rs. 15,56,470 out of the amount claimed by the assessee. The assessee challenged the disallowance in the appeal preferred before the CIT(A).
14. The CIT(A) following Tribunal's order in ITA No. 651/Hyd/07 dated 22/07/2011 passed in assessee's own case for the AY 2003-04 directed the AO to allow depreciation on the wooden crates at 100%.
15. We have heard the parties and perused the materials on record as well as the orders of the revenue authorities on this issue. As the ground raised by the department before us would itself indicate, the department agrees to the fact that the issue in dispute is covered in favour of the assessee by the order of the ITAT passed in ITA No. 10 ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
651/Hyd/2007 for the AY 2003-04 in assessee's own case. The only ground on which the department has sought to challenge the decision of the CIT(A) is, against the order passed by the Tribunal an appeal has been preferred by the Department before the Hon'ble High Court. In our view, filing of an appeal before the Hon'ble High Court against the order of the Tribunal by itself would not make the Tribunal's order either ineffective or inoperative unless it is set aside or reversed by the Hon'ble high Court. In the aforesaid circumstances, the CIT(A) in our view was correct in following the decision of the Tribunal delivered in assessee's own case as it is binding upon her. We therefore do not find any infirmity in the order of the CIT(A). Accordingly, we uphold the same by dismissing the grounds raised by the department.
16. In the result, appeal of the revenue is dismissed.
ITA No. 673/Hyd/14 for AY 2009-10 by the assessee17. The only issue in the aforesaid appeal of the assessee is in respect of disallowance of deduction claimed u/s 80IB(11A) of the Act. This issue is identical to the issue decided by us in Assessee's appeal in ITA No. 672/Hyd/12 (supra). Following our decision therein we set aside the order of the CIT(A) and remit the matter back to the file of the AO for deciding afresh keeping in view our direction therein after affording reasonable opportunity of being heard to the assessee in the matter.
18. In the result, appeal of the assessee is allowed for statistical purposes.
11ITA Nos. 672, 673 & 452/Hyd/2014 AP State Warehousing Corpn. Ltd.
19. To sum up, appeals in ITA Nos. 672 & 673/Hyd/14 are allowed for statistical purposes and appeal in ITA No. 452/Hyd/14 is dismissed.
Pronounced in the open court on 28/08/14
Sd/- Sd/-
(B. RAMAKOTAIAH) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 28 th August, 2014
kv
Copy to:-
1. AP State Warehousing Corporation, C/o Venugopal & Chenoy, CAs, 4-1-889/16/2, Tilak Road, Hyderabad - 500 001.
2. DCIT, Circle - 1(1), Hyderabad
3. CIT(A)-II, Hyderabad
4. CIT-I, Hyderabad
5. The DR, ITAT, Hyderabad.